Well, what a difference a year makes! Certainly when it comes to RICS Redbook valuations!

Valuations are down almost across the board as valuers have adjusted to the new normal of higher interest rates, lower availability of debt, and a consequent increase in the cost of capital.

It’s sad to say it but not everything in the garden of property is rosy. Happy are you if your portfolio comprises mainly industrials and alternatives (beds and sheds and medical property), but much less happy are you if you majored on offices, shopping centres and some retail types in recent years.

I have seen several different valuation firms recently, and many are struggling in their dialogue with their clients. The reason for this is that there is such a dearth of transactions that the comfort blanket that comes from saying that the property down the road sold for £ last month has been whipped away, and some valuers have been exposed for their relative lack of understanding of wider investment markets, risk-free rates, risk premium, and required returns. In one instance of which I am aware, the valuation is now arguably so low that I would get my chequebook out personally if it not for the fact that it is still completely unaffordable, and the owner considers this in the realms of the ridiculous and will not be selling at that price.

In another example, a friend was moaning to me the other day of a long-dated property asset that had had its discount rate increased to reflect short-term interest rates, whilst the prospective cash flows were decreased to reflect uncertain outcomes in the future. The combination of changes has driven down the overall valuation by more than 25% below that which he had reduced his own estimates of what was a reasonable price in the market today. At least it was done by DCF! I worry though that the PI cover and prospective discussions with auditors are now ruling the day, not the investment markets.

One of the industry’s leading real estate figures was telling me over dinner the other day that he didn’t trust any valuation over £20 million in his portfolio today. I might have commiserated more had I not been reflecting that it is not just him but the whole industry that is struggling with the lack of price discovery. I pointed out that the prospective return from the now much lower valuation levels could well prove an extremely attractive entry price. To be clear, that is indeed my view.